Google is now Alphabet. Why? What does this mean?

Google announced on 10 August 2015 a massive organisational overhaul that had the tech and business world caught off-guard and starting October 6, the tech giant is now called Alphabet. This announcement might come as a surprise for some and others initially thought that the company would drop the “Google” brand name. This is not the case nonetheless.

Alphabet is a new public holding or parent company or conglomerate and Google will be its largest wholly owned subsidiary. This organisational restructuring comes from the increasing and diversifying business interests of the tech giant. In recent years, the company has been investing and exploring several products and services—some are directly aligned with the Internet business while others seem odd.

The reorganisation and transition to Alphabet is thereby more than a simple name change. The move will usher in a new era for the tech giant.

“From the start, we’ve always strived to do more, and to do important and meaningful things with the resources we have,” said Larry Page, chief executive. “We did a lot of things that seemed crazy at the time. Many of those crazy things now have over a billion users like Google Maps, YouTube, Chrome, and Android.

“And we haven’t stopped there. We are still trying to do things other people think are crazy but we are super excited about.”

Alphabet is essentially a collection of companies that were initially founded or bought by Google, Inc. The “Google” brand and related main Internet products and services now falls under the “slimmed down” Google, Inc. subsidiary. Those products, services, or companies that are pretty far afield the main Internet business now becomes subsidiaries under Alphabet.

This reorganisation brings forth demarcated leaderships and well-defined corporate governance. As mentioned by Page, “Alphabet is about businesses prospering through strong leaders and independence. In general, our model is to have a strong CEO who runs each business.”

Page serves as the chief executive of Alphabet and Sergey Brin continues to serve as the president of the entire holding company. Both Page and Brin essentially handles capital allocation while maintaining oversight functions to ensure that businesses or subsidiaries under Alphabet are thriving well. They are also in charge of ensuring that each subsidiary has qualified chief executive. The compensations of these CEOs will be determined by Page, Brin, and other Alphabet executives.

For the Google subsidiary, Sundar Pichai, former Product Chief, is now the chief executive.

“He has really stepped up since October of last year, when he took on product and engineering responsibility for our Internet businesses, said Page. “Sergey and I have been super excited about his progress and dedication to the company. And it is clear to us and our board that it is time for Sundar to be CEO of Google.

“I feel very fortunate to have someone as talented as he is to run the slightly slimmed down Google and this frees up time for me to continue to scale our aspirations. I have been spending quite a bit of time with Sundar, helping him and the company in any way I can, and I will of course continue to do that.”

The drastic shift to Alphabet would grant the company better organisational control. This restructuring can also promote the relationship of the company with investors. It is important to note that the mashup inside the former Google, Inc. had created some objections from investors. Because the tech giant has been predisposed to investing in several risky business opportunities, some investors and analysts had questioned how much of these risk-taking projects were costing the company.

Based on the August announcement by Page, the Google subsidiary now has a financial reporting that is separated from the parent company Alphabet. Having these two reportable segments means that the collective financial performance of the Google subsidiary can now be easily separated or individualised from other companies under Alphabet. Furthermore, the entire reorganisation creates a model that could later help the executives and investors further determine profitable businesses from non-profitable ones.

It is also worth mentioning that the reorganisation of Google into Alphabet was not a cost cutting measure. Speaking before the media on 2 October for the Vanity Fair technology Conference in San Francisco, Ruth Porat, the chief financial officer of Alphabet, Inc. said the move “is about ensuring we have the same very detailed, disciplined approach to looking at growth in expenses” as growth in revenue.

Other businesses and products under Google are as follow: Nest Labs, the home-gadget manufacturer acquired by the company in January 2014; Google Fiber, the US-based fibre-to-the-premises broadband Internet and cable service provider launched in February 2010; Calico, an independent healthcare and biotechnology research company founded in 2013; Google X, a technology and research company founded in 2010 focusing on exploring and inventing innovative products to include self-driving cars, Google Glass, nanotechnology, and space-based Internet, among others; and Sidewalk Labs, an technology-driven urban planning and services company founded in 2015.

Google has also setup two investment arms. The first one is Google Ventures, a corporate venture capital fund founded in 2009 dedicated in investing in startup technology companies and the other one is Google Capital, a venture capital fund founded in 2013 dedicated in investing in established or late-stage large technology companies.